Hot Stocks: The iPad Proves It's Not What Apple Sells, It's How Apple Sells It

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Apple Inc.'s (Nasdaq: AAPL) iPad has lived up to the hype, garnering rave reviews and meeting sales expectations. That success is particularly impressive because previous attempts by other companies to launch similar products were met with abject failure.

Because they make up less than 1% of the personal-computer market, few observers realize that so-called tablets have been around for about twenty years now.

The first models offered detachable keyboards, pen-based applications, and were priced in the thousands. A few contributed to companies declaring bankruptcy shortly after their debuts. Most were as pricey as a laptop but without nearly as much memory or competitive features – "underpowered and overpriced" were the usual complaints.

But unlike Compaq's Concerto and the more recent PepperPad, which completely bombed, the iPad enjoyed a warm reception from consumers and critics alike.

Apple sold 300,000 iPads (including pre-orders) during the product's first day on sale, meeting average expectations. That total has since climbed to 450,000 units, and could reach 7 million by the end of the year, according to iSuppli Corp. Proud new owners downloaded about a million applications and 250,000 e-books.

One reason things were different this time around could simply be a more open-mined and tech-savvy consumer. The market for personal computers was still in a developmental phase when the Concerto was released in 1992. Since then computers have not only crept into the mainstream, they've taken on a variety of new shapes, sizes and capacities.

Additionally, the advent of cloud computing, better touch-screen technology, improved wireless Internet access, and social networking sites have carved out a nice new niche for the tablet. And Apple's patience in entering the market allowed the company to learn from competitors' mistakes and offer a more polished product.

Still, Apple did the heavy lifting.

The company's research and development expenses are a testament to how seriously it takes the process of creating new products: In the past four fiscal years, the company has spent $3.94 billion on R&D and raised sales in the same period by 89%.

Apple followed through on the marketing end as well. The company released online videos and ads to tantalize gadget geeks and fan the flames of public interest, in the months leading up to the iPad's release.

Article after blog after online video for months dedicated time and space to speculating on how many iPads would sell and how its release would change the computing industry. Even though no one would get answers until the actual release, iPad chatter became incessant and addictive.

Techies speculated over just how the iPad would change their worlds, analysts guessed at who the lucky component suppliers would be, and media companies lined up to strike deals, hoping to get their content in buyers' hands.

Apple's Web site even touts the iPad on its site as "a magical and revolutionary product at an unbelievable price."

Indeed, Apple's ability to drum up interest in the iPad has been a key factor in its success, perhaps even more so than the actual product. But that's also what keeps it from being a true game-changer, like the iPhone.

iPad Vs. iPhone

It's hard to compare the iPad to the iPhone. They each met with their own level of success and they both face their own unique challenges in the marketplace.

Still, their debuts were eerily similar.

The original iPhone sold 270,000 units in its July 2007 debut. That was followed in 2008 by the iPhone 3G, which sold over a million units in its first three days and the iPhone 3GS, which last year sold over a million phones in its first weekend, along with 10 million apps.

With 300,000 units sold in its first day, the iPad stacks up well against some lofty standards. That's especially true when you consider that the iPhone was released at a time when consumer spending had not yet been dampened by the financial collapse and the unemployment rate was substantially leaner than it is today.

But this all means very little going forward, because Apple will have to maintain a strong level of interest in the iPad long after all the hype surrounding its release fades away.

To that end, the company hopes the iPhone OS 4 – which will be released for iPhone 3GS and iPod Touch in the summer and for the iPad in the fall – will help buoy iPad sales. The new operating system will correct one of the biggest complaints against the iPhone and iPad by allowing users to use more than one app at the same time.

It will also be the platform through which Apple enters into a new world of advertising.

Through its new "iAd" system Apple will let developers embed ads into their applications, with Apple getting 40% of the revenue generated.

Hewlett-Packard Co. (NYSE: HPQ) is expected to release by mid-year its tablet, which has two features missing from Apple's: a camera and ports for add-on devices. HP says it has been working on the device for years but is delaying the release until the price can be lowered.

And Apple's arguably biggest nemesis, Google Inc. (Nasdaq: GOOG), is not only marketing its own Android software to tablet manufacturers, but is reportedly considering creating its own tablet computer and its own apps marketplace.

Besides the technology field, Apple's innovations are pushing waves of change through other businesses.

Now that e-reader products seem sure to fill the market, the publishing world will have to adjust accordingly in the years to come as digital books encroach upon their print counterparts.

Memory chip manufacturers like Samsung and Toshiba Corp. are looking at brighter futures as tablet computers and smart phones are in huge growth positions.

Despite the rivals trying to nudge into the market and companies profiting from the sidelines, Apple is already reaping the rewards.

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